ABSTRACT
We are concerned with the problem of intervention in markets where service levels, as well as prices charged, are important. We show that intervention in such markets could, in principle, improve welfare. However, effective intervention depends on generating and using suitable information. In markets in which demand cannot be kept analytically separate from supply, this is not easy. This difficulty characterizes the markets with which we are concerned, and so we suggest methods of inferring parameters relevant to particular interventionary acts. We thus contribute to discussion of a basic question—whether or not to intervene. This, following Demsetz (1968), should involve a comparison of outcomes with intervention with those expected without it, in which one argument must be the prospect of suitable regulatory information.
